Microsoft’s Financials
Despite the gloom, Microsoft’s (NASDAQ:MSFT) Q2 revenues were the highest ever at $20.89 billion. Revenues grew 5% over the year and were in line with market expectations. EPS of $0.78 was ahead of the market’s projected earnings of $0.76 per share.

The declining netbook sales hurt Windows revenues, which fell 6% over the year to $4.74 billion. However, the decline was compensated by 11% growth in server and tools revenues to $4.77 billion and 15% growth in entertainment and services division revenues to $4.24 billion.

Microsoft’s Entertainment Division
Microsoft has seen strong growth in their Xbox business. Since their launch, Microsoft has sold more than 66 million Xbox consoles and 18 million Kinect Sensors. Xbox has an estimated 20% share in the gaming consoles market, and its share is expected to continue to grow. To add to their offerings, last quarter Microsoft acquired VideoSurf, a provider of mobile app for Android OS. VideoSurf’s app listens to and records snippets of TV shows or movies to search for information on the TV show, episode details, and cast list. The app comes preloaded on Verizon Wireless–operated Android phones. Users can also share the results through social networking tools such as Facebook or Twitter. Microsoft plans to add VideoSurf’s services to Xbox Live to continue to build its online user engagement.

Microsoft’s Bing
Meanwhile Microsoft is also seeing positive trends for their search engine Bing. According to a comScore report released earlier this month, search queries on Bing surpassed those on Yahoo for the first time last December. While Google maintained leadership with 65.9% market share of the search queries in the U.S., Bing came in second with a 15.1% market share. A month ago, Bing’s share was marginally lower at 15%. Bing’s expansion can be attributed to the troubled times at Yahoo, which saw its market share fall from 15.1% in November to 14.5% in December.

Microsoft’s stock is just shy of 52-week highs of $29.95 with a current market capitalization of $249.46 billion. Microsoft may have struggled this quarter with consumer desktop Windows sales, but they are compensating that decline by positioning themselves well in other segments. Enterprises continue to purchase Windows 7 upgrade and Office 2010 licenses, Kinect sales are booming, and in the online segment, Bing’s recent second place ranking for search queries is a positive trend as well. For the coming quarters, though, the market has big expectations from Windows 8. Only time will tell if Microsoft will be able to meet them.